Transcript Employment Policy in Latin America: The Missing Link between

Employment Policy in Latin
America: The Missing Link
between Economic Growth,
Poverty and Income
Distribution
Class 2
Kirsten Sehnbruch
Center for Latin American Studies
UC Berkeley
Feb 11 – March 4, Fridays, 10.00am – 1.00pm
History of Economic Development in
Latin America (1): Colonial roots
History of natural resource exploitation
Restrictions on manufacturing
Concentration of land ownership
Limited trade among different colonial
territories
Dutch Disease: natural resource industries
crowded out local manufacturing which
had to compete for scarce labor (importing
manufactured goods was cheaper)  high
wages
History of Economic Development in
Latin America (2): After Independence
First Britain (then US after WWI) became main
foreign investor in LA (supplanting Spain and
Portugal)
Continued investment in natural resources: exportled growth with declining terms of trade, ie produce
more cotton to buy the same machine
High concentration of export products (Table)
Subject to market fluctuations of trading partners,
especially the 1929 crash; collapse in commodity
prices
Vulnerability to external factors led to initial efforts to
diversify production structures into manufacturing
History of Economic Development in
Latin America (3): 1950s to 70s
Recovery and windfall cash flows during WWII as LA
became a supplier to nations at war, who had turned
their production into a war machine
After WWII, industrialised countries protected their
markets again: now LA faced excess supply
Increased awareness of risks associated with
dependence on trade in commodities
Important role of ECLA in redefining development
processes: dependency theory led to:
Investment in Import Substitution Industrialisation
(ISI), 1950s-1970s
History of Economic Development in
Latin America (4): ISI
Deliberate decision to manufacture goods for local
market (and then for export)
Closed local markets to imports through tariffs (except
for capital goods required for manufacturing)
State subsidies for (or the state founded) companies that
established local production, eg. steel, automobiles,
consumer durables, heavy industry.
Nationalisation of existing industries (eg. copper, oil,
mining)
Financed with foreign loans from capital markets awash
with cash from oil bonanza
Disequilibria: inflation, overvalued exchange rates
followed by massive devaluations, trade deficits, fiscal
imbalances
History of Economic Development in
Latin America (5): Debt crisis and
Reform
Oil crisis of 1970s led to debt crisis in Latin America as
interest rates rose
Debt crisis led to stabilisation measures, structural
adjustment and finally neo-liberal reforms
The 1980s in Latin America are generally referred to as
the ‘lost decade’. Overall growth was -8.3%. With few
exceptions, per capita GDP in 1990 was below its 1980
level.
1990s: varying degrees of neo-liberal reforms and
implementation of Washington Consensus policies (eg.
privatisations, liberalisation of product and financial
markets, fiscal responsibility, generally lower inflation,
and massive retrenchment of the state in the economy)
History of the Latin American
Labor Markets
ISI causes internal migration (urbanization): result of
population increases in first half of 20th c and the
pull of new jobs in industry
Segmentation: the growth of the informal economy
begins (see slide below)
Process of unionization leads to insider/outsider
problems: high wages vs informal economy
Labor force not able to compete in international
economy
Politicization of unions, especially under populist
regimes, leads to very powerful union structures
Social security becomes increasingly fragmented:
based on interest groups and unions
Example: Unions under Peron
Peron based his political power on unions
Massive expansion of union membership
Clientilism: once he came to power, payback time: the
rights of the unions expanded massively under ISI
process he initiated (including social security structures)
The process relied on continued investment into ISI
development to support entrenched interests (of unions
and employers)
Prevented process of opening up economies to foster
competitive export sector based on manufacturing (like
in Asia)
Unions became powerful political actor: the unrest they
caused brought Peron down, and later their support
brought him back
Consequences
The political role of unions in either supporting or
opposing a government (historically) makes
relationships between employers and workers much
more polarized: there is more at stake than mere
wages
Military regimes decimated union power structures as
a result
Relationships today are still polarized: unions have not
come to terms with neo-liberal reality and employers
avoid unions at all cost. No spirit of cooperation.
Unions represent a dwindling proportion of the labor
force: 10-20% (in a context of worldwide declining
unionization rates)
The Informal Sector
Argentina
Bolivia
Brazil
Chile
Colombia
Ecuador
Mexico
Peru
Venezuela
1950
9.5
10.5
6.9
13.8
8.5
7.7
9.7
9.8
11.4
1970
9.5
14.5
9.3
11.5
11.5
13.7
14.5
17.0
16.0
1990
52.0
40.6
37.9
45.7
55.6
38.4
52.7
38.6
2000/3
46.5
66.7
44.6
38.0
55.6
55.0
41.0
56.2
52.4
Employment and Democracy:
Today we have data
Economic insecurity, felt by the individual
through precarious working conditions, is one of
the primary concerns of Latin Americans
(Latinobarometro surveys)
Dissatisfaction with their employment situation
decreases people’s dissatisfaction with the
market economy
Dissatisfaction with the working of the market
economy also decreases dissatisfaction with
how democracy is working, and even with
democracy as a system
The Social Actors (1): Employers
Stable macroeconomic environment
No boom/bust cycles
Profit orientation: lowest possible
wage costs and non-wage costs
smooth operations of their business
(no strikes)
Requirement for a skilled and
motivated labor force (positive and
negative motivators)
The Social Actors (2): Unions
Unions represent interests of workers in their firm
National confederation of unions represents of the
workforce in general
But: insider/outsider issues: unions do not represent
informal workers, the unemployed, or the inactive who
cannot find work
Unions seek the best working conditions for their
members, often an overriding concern for wages
Lost political power (military regimes and neoliberal
reforms). Today hardly represent a valid interlocutor.
Failed to adapt to neoliberal reality: no concern for
improved productivity as a stepping stone for better
working conditions, eg training
The Social Actors (3):
Government
Reduced role of government since neoliberal reforms
foster economic growth and smooth functioning of the
economy (no crises, no strikes, no mass lay-offs)
Control unemployment rate (most politically sensitive
factor of labor market issues)
ensure appropriate social security systems
Strong political motivation for decreasing poverty
ensure least fiscal expenditure on employment policies
Concern for both formal and informal workers (but
more for the formal ones)
Concern for training the labor force
Example of Conflicting Interests:
Professional Training Policies
Objective: a labor force that is as highly trained
as possible
All social actors: spend as little on training as
possible
Example of a solution: Chilean system SENCE:
government gives employers a tax credit if they
invest in training. Any certified institution (public
or private) can provide this training.
Or: European model of apprenticeships
Reality of SENCE Training
The segment of the labor force that requires the most training
is not part of the formal sector, and therefore has to rely either
on government training programs or on their own resources
Latin American governments spend very little on labor policy
(including training) compared to developed countries
Training is a business: it is cheaper and easier to teach
English than a mechanical skill, which requires investment in
machinery
Unions: have failed to integrate the issue of training into their
negotiation processes and to adopt it as a regular issue on
their agenda
Employers are afraid that they will lose an employee once he
or she has acquired a higher level of skill to the competition,
and will thus lose the investment
Workers: see little result from training and therefore do not
insist or ask for further training
Results from SENCE Program
Very little training is actually undertaken
Employers do not even use the full tax credit that
they are entitled to
Most of the people who are trained, are trained
in blackboard skills
There is a continued skill shortage in the Chilean
labor market
Nobody takes training seriously as an issue to
invest in because there are few tangible results
from it
Alternative Model:
Apprenticeships
Students learn a technical skill while still in
secondary education system
While undertaking theoretical schooling they are
also integrated into a business to learn practical
skills on the job
Qualifications consist of both practical and
theoretical components
Requires a close cooperation between
employers, government and unions
Labour Codes: components
Exclusion of the independent / informal sector
Definitions of contracts
Conditions for dismissals/redundancies
Other working conditions (eg. Jornada laboral,
maternity leave, subcontracting)
Process of establishing unions
Collective bargaining
Industrial action
Health and security at work: accident prevention
Legislative changes generally not retroactive
Independent Workers
In LA, independent workers (the selfemployed) are not considered by labor
legislation
Where labor legislation touches on social
security issues, they can generally
contribute on a voluntary basis
The self-employed provide services
regulated by civil law, not labor legislation
(honorarios/boleta)
Types of Contract
Open-ended (Contrato Indefinido)
Short-term (a plazo fijo / temporario)
Project based (por tarea o servicio)
Temporary (seasonal workers)
Domestic service (often subject to different
legislation within labor code)
Dismissals and Redundancies:
Reasons
Just Reasons:
(Causa Justa)
–
–
–
–
end of contract
misconduct
retirement
voluntary resignation
Unjust Reasons:
(necesidad de la
empresa)
– downsizing (eg.
economic reasons)
– redundancy (eg. skill
mismatch)
– Firm closure (usually
due to bankruptcy)
Reasons for Dismissals
determine Severance Pay
A “fine” that the employer has to pay when
dismissing an employee for unjust reasons
The amount is generally related to the period of
time that an employee worked for a company
Historical reasons for severance pay:
– to avoid job rotation
– to provide the worker with funds while looking for a
new job (unemployment insurance)
– One of the most important historical concessions that
unions won for their members
Today viewed as the most important impediment
to labor market flexibility in Latin America
Practical reality of Severance Pay
Only applicable in cases, where there was a formal contract
Given the relatively low cost of wages in Latin America,
severance pay does not amount to great sums
If there is a multiple lay-off for economic reasons, it can
represent a high cost to employers
If a worker has worked for a long time with the same
employer (eg. > 20 years), and there is no legal ceiling to
severance pay, it can represent a high cost
The smaller the company, the more significant the cost.
The smaller the company, the more likely that the worker
will not be paid the full severance pay due
Lack of data: we do not really know the extent to which
severance pay legislation is complied with in Latin America
The larger the company, the more likely that severance pay
is paid in full
Health and Safety Legislation
Labor code establishes a firm’s obligation to take
out insurance
Internal security structures (eg. Committees in
charge of implementation, security training for
new staff, definition of safety equipment)
Requires functioning compliance checking
and/or massive punishment in case of employer
negligence
LA has very high fatal and non-fatal accident
rates
Often additional legislation exists that is not in
the labor code
Does size matter?
Differential legislation for different sized
companies
The larger a company, the better the jobs
(generally) and the more likely they are to
comply with labor legislation
Large companies are often part of a
multinational operation
Large companies care for their public image
Large companies have greater fiscal resources,
especially if they are part of a multinational, and
are much less likely to go bankrupt
Legislation for small and large companies:
Advantages and Disadvantages
If smaller companies suffer from labour market
legislation, why not differentiate in the legislation
between smaller and larger companies? eg.
union legislation or maternity benefits in Chile
Less rigorous legislation for smaller companies
makes it easier for them to establish themselves,
to compete and to grow
What factors speak against such differentiation?
Regulation vs Jobs?
The argument of neoliberal policy makers and
employers is that regulation of labor market
activity in countries with large informal sectors
hinders the generation of jobs
The particular bone of contention is severance
pay and hiring/firing legislation
Unions, on the other hand, do not want to lose
their acquired rights (derechos adquiridos)
And governments have to control unemployment
rates, reduce the informal sector and foster the
best quality of employment possible.